French Economist: Augustine's Duopoly Model
COURNOT MODEL French Economist, Augustine cannot develop the first model of oligopoly in 1838 in the form of Duopoly model. While developing this model, he made following assumptions: There are only two firms setting homogenous products in the market. There is zero cost of production for both of the firms in the market, i.e. MC=0. The firm faces straight line downward sloping demand curves. Each firm assumes that the other firm hold its output constant while descending their own output and profit (Cournot’s Behavioral assumption) There are two firms’ produces homogenous products. Each firm assumes that rival firm will keep its output constant to produce profit maximization output. This model can be explained with the help of an example, …show more content…
Both firms have same cost of production. Thus, average and marginal are same for both firms. In this model, equilibrium is reached when there are no profits to the firm. Stackelberg duopoly This model of duopoly is developed by German economist Heinrich Stackelberg in 1934 in his book “The Theory of the Market Economy”. This model is also based on non- cooperative game and extension of Cournot model. Cournot model assume that firms make their output decision at the same time but this model assumes that if one firm sets its output first then this firm have an advantage over the another firm and this firm is known as first mover advantage. Assumptions of this model are: There are two firms only. They sell homogenous goods. Both firms have same demand and cost …show more content…
Iso-profit curves and reaction curves of two firms are shown in the diagram. Suppose firm A is the leader firm and assumes that its competitor firm B will act on the basis of its own reaction curve. Leader firm, firm A, will decides its output level which maximize its profit. This is shown by point ‘e’ in the diagram. This point ‘e’ gives maximum profit to firm A because this point lies on the lowest possible iso-profit curve of firm A when reaction curve of firm B is given. Firm A decides monopolist output i.e, Qa (shown in figure), and firm B, according to its reaction curve, produces Qb output. Clearly, leader firm produces higher output and follower firm produces lower output as compare to Cournot’s equilibrium. In nut shell, stable equilibrium is reached when one firm is leader and another is
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